Why are the values of homes in the suburbs/urban areas of Pittsburgh the inverse of other cities? (Philadelphia: real estate market, apartments)

[BrianTH]

Originally Posted by Copanut

No, it's not, but stating that the increase in value is superior to that in Cranberry is misleading.

In truth assessing whether or not that is an accurate claim depends on the methodology used in the study, and that article isn't sufficiently detailed on the methodology of that study for that purpose.

[Herodotus]

Traffic is indeed a factor in some cities. Looking at DC, traffic is horrible. People are commuting from as far as Frederick, and Fredericksburg. The housing in DC's inner core is architecturally spectacular, and very appealing to those who like an urban lifestyle. With about 40% of DC being hardcore "hood", and another 30% being upper middle class and higher, there has been extreme upward pressure on prices in the remaining areas of DC, a city with virtually no white working class neighborhoods. Pittsburgh doesn't have these issues. Think of it this way; if Pittsburgh had the traffic issues of DC, many people who are very happy living in say, Peters Twp., would be driven to try to find housing in Mt, Lebanon, or even Squirrel Hill, causing prices there to rise. Of course, concentrating more wealth in those areas, would make them even more desirable, causing prices to rise even more. That's exactly what's at work in DC, and probably many of these other cities. Cleveland is actually very different than Pittsburgh, in that the housing stock inside Cleveland's city limits is inferior to what Pittsburgh has inside it's borders. Yet, Cleveland's inner suburbs are much superior to Pittsburgh's. I'm not sure what the housing prices look like in Cleveland, (I know the city got hit hard in the meltdown), but I would suspect that these differences create a somewhat different dynamic than what's at work here.

[Katarina Witt]

Originally Posted by Fiddlehead

I am going with the dam bursting. But I suspect that it will be highly spotty. Folks now seem to be very herd-minded with certain areas moving in mass based on common demogaphics. I have seen it out here. All the places that appealed strongly to amenity-seeking Californians (e.g. Bend, Ashland,OR, Boulder, CO, Santa Fe, NM, Jackson Hole, WY) were blasted into the stratosphere in the bubble, but other less high-profile areas (e.g. Salem,LaGrande OR, Pueblo, CO, Cheyenne, Sheridan, WY) had very little bubble up. So, if Pittsburgh gets discovered, the hip neighborhoods will be inundated by NYC, DC, and San Fran refugees and will rise several standard deviations above the surrounding areas. That is what we saw. Not really a good thing in my mind, but perhaps in moderation it would be ok.

This is off-topic for Pittsburgh, but there is a huge difference between Boulder (which is no more pricey than many chic neighborhoods in Denver) and Pueblo. For you Pittsburghers, it is comparing Cranberry, to say, Uniontown. (Pueblo is about 110 miles from Denver, while Boulder is 30.) Boulder's housing prices did not get blasted into the strastosphere by Californians, though a lot of people there like to blame everything on the Californians. Even today, there are more midwesterners there than Caliornians, almost as many midwesterners as natives.

I am not sure the analogy holds up (to get back OT).

[Fiddlehead]

Originally Posted by Katiana

This is off-topic for Pittsburgh, but there is a huge difference between Boulder (which is no more pricey than many chic neighborhoods in Denver) and Pueblo. For you Pittsburghers, it is comparing Cranberry, to say, Uniontown. (Pueblo is about 110 miles from Denver, while Boulder is 30.) Boulder's housing prices did not get blasted into the strastosphere by Californians, though a lot of people there like to blame everything on the Californians. Even today, there are more midwesterners there than Caliornians, almost as many midwesterners as natives.

I am not sure the analogy holds up (to get back OT).

Perhaps I got Boulder wrong. It does very much seem a "destination" city, with big money moving in and the teachers commuting. Not sure all the money is from Cali.

There is a very good reason people blame Californians, and it has nothing to do with whether they are better or worse than anyone else. By virtue fo their huge population and the unfathomable amount of equity that was tapped during the housing bubble, they put tremendous pressure on many markets. For instance, in 2005 there were tour buses of flippers coming out from California to buy homes in Phoenix, AZ. And they certainly overwhelmed many smaller communities. But back to this thread, I was simply making the point that the "in" places will likely attract the most wealth. Perhaps that is no longer true, because I doubt we we will see such a huge number of people with similar tastes and huge $$$ from one area. The sunbelt bubble was a fluke, and thank God for that!

[Fiddlehead]

Originally Posted by gameguy56

Real estate prices higher in some places Appreciation in the South Side is double that of cranberry

Not to finger wag, but I would steer away from the suggestion that appreciation rates will always be different in one place than another. There might be very good reasons to speculate, but it is easy to forget about how compound interest plays out.

For instance a home in one neighborhood at $150k and is appreciating at 8% a year and another home at$125k is appreciating at 4%. That is, neither is going to hell in a handbasket, nor is the economy. After 10 years they will be at ($324k and 185k) or almost $140k difference in price, so unless the first neighborhood is much better or generating high $$$ jobs, folks will move into the other, and the rate differential must shift. We are seeing a lot of people move around and prices are rising in some areas quite rapidly, and folks like to extrapolate into the future, but a strong exponential is usually a transient function.

I am thinking about this because during our housing boom here, we had about 6-8 years of over 10% appreciation with a few much higher than that. My buddy, with a PhD was crowing that prices around here go up 20% a year! Woohoo! All the while wages were stagnant. I was amazed at how much foolishness there was. Now one would hope that appreciation would slightly eclipse the cost of living, but expecting much beyond that for more than 5 years is simply foolish in my book.

I would qualify all this by saying that Pittsburgh as a whole is well under the average, so some substantial appreciation might be expected soon as the word gets out and simple diffusion kicks in. But it will be short-lived!

[Katarina Witt]

There is a lot of excess capacity in the Pittsburgh housing market, particularly in the city, which lost almost half its populaton over about 40 years.

[BrianTH]

The reason the South Side and Lawrenceville experienced atypical appreciation is probably just because they were rapidly gentrifying neighborhoods in the relevant period, and I agree that sort of rate cannot possibly be sustained for too long. Even the 5-6% in certain more upscale mature city neighborhoods probably wasn't quite sustainable, although even at that rate it would be a while before those neighborhoods could plausibly come close to their peers in many other cities.

[Fiddlehead]

Originally Posted by Katiana

There is a lot of excess capacity in the Pittsburgh housing market, particularly in the city, which lost almost half its populaton over about 40 years.

I did know the broad strokes of that, but I don't want to imply I know much if anything about Pittsburgh real estate.

One thing I do know is a simple comparison of median price/median wage yields this for my town Ashland, Oregon and Pittsburgh from the city data 2007 figures (It is probably a bit more affordable in Ashland now):

Ashland, OR
Median home $420k/Median Household Income $39.9 = 10.6 x Income
Unemployment (May 2009) 13.8%

Pittsburgh,PA
Median home $84.5 k/Median Household Income $32.4 = 2.6 x Income
Unemployment (May 2009) 6.8%

Not capping on either place, but this is a simply shocking difference, and I think folks, particularly those starting out, will move in eventually. Or they should!

As for Ashland, another buddy with a PhD thinks since things have declined enough now (probably to 8.5 x income) and foreclosures are dwindling they will begin rising again soon! And with 14% unemployment! It is amazing when people drink their own "koolaid."

[Drover]

IMO it's simple: it's not that much more convenient to live in the city versus the suburbs. In the cities you've listed, people are willing to pay a premium to not have a killer commute. There's no such thing as a "killer commute" in Pittsburgh. Locals will tell you the commute sucks if you have to go through one of the tunnels, and that's true by Pittsburgh standards. But I had one of those "killer commutes" where I had to drive from the east end to a western suburb and back, through the Fort Pitt tunnel. My "killer commute" was about half an hour each way in the worst rush hour traffic. That exceeds the average commute in Allegheny County by roughly 40%; my colleagues thought I was nuts for putting up with that kind of commute. Every poor schlub slogging through DC traffic tomorrow would probably murder puppies to "only" have a half-hour commute. Or, they'd be willing to pay 20-30% more to live in or near the city to cut down on their commute time and/or have access to more transportation options.

[BrianTH]

Another useful piece of data to consider is rents. According to Zilpy, the average price per square foot for 1BRs in the Pittsburgh Metro is $0.66. In Allegheny County that rises to $0.81, and in the City it rises further to $0.84. In Bloomfield (what I am using as an average neighborhood closer to the center) it is $0.88, and in the Golden Triangle it is $1.10.

So actually, the rental story supports the view that you have growing demand as you get closer to a central location.